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Agencies are allowed to raise pay caps for their Senior Executive Service (SES) members if the Office of Personnel Management (OPM) certifies and the Office of Management and Budget (OMB) concurs that their appraisal systems meet applicable criteria. As requested, this report examines selected agencies' policies and procedures for (1) factoring organizational performance into SES appraisal decisions, (2) making meaningful distinctions in SES performance and (3) building safeguards into SES systems. Also, this report examines OPM and OMB oversight in certifying the pay systems through their statutory roles. GAO selected six agencies based on mission, structure, and number of career SES variations. GAO analyzed the agencies' policies and fiscal year 2007 aggregate SES appraisal data and OPM guidance.

All of the selected agencies--the U.S. Departments of Defense, Energy, State, and the Treasury; U.S. Nuclear Regulatory Commission; and USAID--have policies in place that require senior executives' performance expectations to be aligned with organizational results and organizational performance to be factored into appraisal decisions. While almost all of the agencies provided and communicated the importance of considering organizational performance, USAID did not provide its performance review board members (PRB) and other reviewing officials with any specific information on organizational performance to help inform their executive appraisal recommendations. All of the selected agencies have multiple rating levels in place for assessing senior executive performance. For the fiscal year 2007 appraisal cycle, senior executives were concentrated at the top two rating levels, which raises questions about the extent to which meaningful distinctions based on relative performance are being made and how OPM applies this criterion. OPM has an opportunity to strengthen its communication with agencies and executives on the importance of using a range of rating levels when assessing performance while avoiding the use of forced distributions. All of the selected agencies have safeguards, including higher level reviews of performance appraisal recommendations, PRBs, and transparency in communicating the aggregate results, although agencies varied in how they implemented such safeguards. While generally satisfied with OPM's and OMB's oversight, officials at the selected agencies said OPM could strengthen its communication with agencies and executives on how it uses the SES performance appraisal data and correlation between ratings and performance pay in determining whether agencies are making meaningful distinctions based on relative performance. Further communication from OPM is important in order for agencies to have a better understanding of how they are being held accountable for these certification criteria and make the necessary improvements to their systems to maintain certification. Further, senior-level officials at the selected agencies suggested options--such as moving to an electronic submission process and lengthening the certification coverage beyond 2 years once their systems are operating at the fully certified level--to increase the efficiency of the process. Moving forward, it will be important for OPM and OMB to identify ways to improve the certification process and make it more streamlined while ensuring that agencies have the guidance, tools, and training they need to implement effective performance appraisal and pay systems for their senior executives.

Recommendations for Executive Action

Status: Closed - Implemented

Comments: USAID concurred with this recommendation when responding to the draft report for agency comments. At the end of fiscal year 2008 appraisal cycle, USAID provided its PRB members and other reviewing officials with uniform organizational performance assessments, such as the Performance and Accountability Report, Program Assessment Rating Tool results, and other key individual operating unit reports. According to a USAID official, these documents were provided at the performance review board (PRB) meeting on November 17, 2008.

Recommendation: To help ensure consistency and clarity in how organizational performance is considered in appraising executive performance, the Administrator of the United States Agency for International Development (USAID) should provide uniform organizational performance assessments to PRB members and other reviewing officials to help inform their appraisal recommendations for senior executives at the end of the performance appraisal cycle.

Agency Affected: United States Agency for International Development

Status: Closed - Implemented

Comments: In March 2011, OPM in coordination with the Office of Management and Budget (OMB) established an interagency working group comprised of officials from OPM, OMB, the Departments of Labor and Commerce, and other agencies to help streamline the appraisal system certification process, focus requirements and regulations on a set of priority outcomes and management goals and foster dialogue and collaboration between OPM/OMB and agencies. According to OPM, the working group's final recommendations for improving the use of the SES Performance Appraisal Assessment Tool (SES-PAAT)--an electronic tool agencies use to evaluate how their systems address the certification criteria and submit for certification to OPM--and automating the certification process when and where it is possible are to be made in September 2011. In another effort, through its briefings and guidance to agencies, OPM has requested that agencies electronically submit the documentation for certification reviews and indicated that this format was the preferred method of receiving the information. Also, in an effort to promote increased efficiencies, OPM expanded the use of the SES-PAAT from only agencies with full certification to all agencies requesting initial or continued certification.

Recommendation: To help improve the efficiency of the certification submission process for agencies, the Acting Director of OPM and Director of OMB should explore opportunities for streamlining the certification process, such as electronic submissions or lengthening the full certification coverage beyond 2 years for agencies that received full certification.

Agency Affected: Office of Personnel Management

Status: Closed - Implemented

Comments: In March 2011, OMB, in coordination with the Office of Personnel Management (OPM), formed an interagency working group comprised of officials from OPM, OMB, the Departments of Labor and Commerce, and other agencies. The focus of the group is to help streamline the appraisal system certification process, focusing requirements and regulations on a set of priority outcomes and management goals and fostering dialogue and collaboration between OPM/OMB and agencies. In another effort to make the process more efficient for agencies, OMB plans to switch from a paper or email attachment format for certification submissions that is currently followed to a web-based portal with a unique page for each agency. Currently in the process of creating the portal, an OMB official said the agency would have the ability to store its documents electronically with the new portal and update them as needed when renewing its certification without resubmitting documents that have not changed.

Recommendation: To help improve the efficiency of the certification submission process for agencies, the Acting Director of OPM and Director of OMB should explore opportunities for streamlining the certification process, such as electronic submissions or lengthening the full certification coverage beyond 2 years for agencies that received full certification.

Agency Affected: Executive Office of the President: Office of Management and Budget

Status: Closed - Implemented

Comments: In its February 2010 guidance to agencies on the certification process, OPM stated that the requirement for making meaningful distinctions in performance ratings, pay adjustments, rates of pay, and awards is a key criterion affecting certification and only agencies showing meaningful distinctions in performance and pay will receive certification. OPM reminded agencies to ensure that this requirement is communicated clearly to the senior employees, among others involved in the appraisal process. Further, OPM stated that it expects agencies to make meaningful distinctions in awards for senior employees who are paid at the applicable maximum rate of pay by using performance awards to reward high-performing senior employees. In June 2011, an OPM official said OPM has begun to focus agency attention on establishing ratings that reflect organizational performance to help them avoid thinking there is an ideal rating distribution. OPM has not yet addressed the issue of avoiding forced distributions and the value of a fully successful rating in its guidance or broader communications with agencies.

Recommendation: To help improve agencies' understanding of certain aspects of the certification decisions, the Acting Director of OPM should take action to strengthen OPM's communication with agencies and executives on the importance of making meaningful distinctions in performance while avoiding the use of forced distributions and that a fully successful rating is valued and rewarded.

Agency Affected: Office of Personnel Management

Status: Closed - Implemented

Comments: OPM has further explained to agencies how the correlations between ratings and pay are being used to determine how the agency is addressing the certification criteria through two formats. First, in its current instructions for using the SES Performance Appraisal Assessment Tool for certification submissions, OPM clarified the correlation coefficient score (0.7 to 1.0) that is needed to receive full points for addressing the pay differentiation criteria and the score (0.5 to 0.699) needed to just meet the criteria, but receive fewer points. In its January 2010 briefing with agency officials on SES issues, OPM explained how the coefficient was calculated and according to an OPM official, how it is one of many factors used in certification decisions. At this briefing, OPM also provided summary statistics on the distribution of coefficients for selected agencies over a three year period.

Recommendation: To help improve agencies' understanding of certain aspects of the certification decisions, the Acting Director of OPM should take action to strengthen OPM's communication with agencies and executives on how it uses the SES performance appraisal data and the correlation between ratings and performance pay in determining whether agencies are making meaningful distinctions based on relative performance as measured though the pay and performance differentiation certification criteria.